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The reverse psychology of Bitcoin

Here’s a nice post by Krugman on Bitcoin. As noted on many occasions, I share many of the same concerns.

Furthermore, I am yet to hear a convincing argument as to why this isn’t just another attempt to extort money from the gullible for the purpose of forging a new elite.

A comment came my way on Twitter suggesting Bitcoin is liked because it represents freedom. I couldn’t disagree more. Bitcoin represents the reconstitution of a hierarchal system that directs wealth into the hands of a small elite — and maintains the oppression of the masses. This is delightful to anyone who is losing hierarchal privilege (as opposed to real tangible wealth) on account of the tech-induced supply shock we are going through.

Given that, one way or another, (whether through QE or self-imposed negative interest rates) the relative wealth of those who have accumulated deferred redemption claims is going to be debased on relative grounds (NOT absolute grounds), it stands to reason new value systems and bubbles will be invented to concentrate wealth synthetically.

These attempts, however, will fail. For one thing Bitcoin is far too easy to replicate. As I’ve written before, once Bitcoin’s value grows to unreasonable levels, people will prefer to pump up alternatives than be the last man to the Bitcoin party, where early entrants are now millionaires.

Like with all commodities, substitution begins to make sense when it’s too pricey.

But once everyone is claiming purchasing power with a self-created currency, that leads to a system of total economic disorder — one which could very realistically lead to problematic inflation and/or the dissolution of money out right (since by that point everything is basically free).

I know I advocate abundance theory but even I don’t think we’re at the free point yet.

Meanwhile, the one aspect of Bitcoin which is truly innovative and socially useful — the open ledger, decentralised block chain and anchoring in energy use — can be applied to any alternative value unit (one backed by real value). This can be applied to all forms of money, but most notably to government money in a way that undermines the private participation of banks in the money industry.

That said, Bitcoin itself could have value if its supply was open ended and limited by energy availability rather than intensity, i.e. Bitcoins could be produced ad infinitum until resources became so depleted that the cost of encrypting, mining or sealing Bitcoin transactions became prohibitively expensive to the extent that transaction velocity was slowed down.

But this is a cumbersome way to create an energy-backed unit, and one which leads to unnecessary energy exploitation to arrive at a value point.

The only other value Bitcoin really has is in convincing the most suspicious, nefarious and unsocial types in the world that digital currency doesn’t necessarily infringe on one’s freedoms.

More specifically, in convincing them that cash isn’t necessarily king, and that digital currency can be private if not anonymous.

This is a huge coincidental feat for central bankers who — in a secular stagnated world — may one day wish to abolish cash outright, and shift the world to a cashless digital money society.

It’s what you might call conditioning through reverse psychology.

I mean, imagine how much easier the Bitcoin prelude makes introducing digital cash and abolishing banknotes to god-fearing end-time types ( the sort that fear the mark of the beast ) as well as criminals?

Indeed, Bitcoin — a totally digital currency — has instead of oppressing freedom come to represent freedom to these same people, due largely to the currency’s digital cryptographic credentials and cool.

The other thing to consider is that if and when the currency does blow up — and it’s pretty likely that it will given that it’s been specifically designed to blow up due to its inflexible supply base — it will take a government saviour to re-establish value and order in the digital currency world, and in so doing either de facto nationalise Bitcoin (mutating Bitcoin into digital fiat currency) or let it fail, allowing superior digital fiat currency to come to the rescue instead.

Either way, what a nifty way to introduce cashless digital money to society?

After all, if rejection of cash started anywhere other than the criminal black market and/or the freedom loving anti-government sector, it would be much, much harder to roll-out.

But given that it’s anonymous enough for criminals and free enough for Libertarians, what’s not to like, eh?

Please see my previous writing on money entanglement. Our current money system is made up of a mixture of private and government money that trades side-by-side. It’s just that private money issuers have seen sense over the years in pegging the values of the private money they issue to the government money. The system has also evolved into one where the government has an interest in stabilising private money markets if and when they fall into distress, by issuing or absorbing more money out of the system. They have the power to do this because the mutual interest associated with government money (mainly the mutual tax burden) usually makes it a shared common denominator and in so doing makes it the most liquid type of money. This is not always the case! Private money or foreign money can become preferable to government money if and when the government fails to manage its supply prudently (i.e. Zimbabwe etc).

If Bitcoin fails government will have the option to come in and stabilise the system (but when governments do intervene in this fashion, this essentially means the nationalisation of the private money systems they rescue) or it can allow Bitcoin to fail. Given that Bitcoin is not lehman, and Bitcoin money is nowhere near as entangled as investment bank/bank money, I would presume they would let it fail. This would be a valuable lesson in moral hazard for virtual money investors.

As for secular stagnation, you’re right.. there is an element of choice. But only an element. The choice in my opinion is whether we recognise the crisis for the secular and structural crisis it is (rather than a banking crisis) and take mitigating action to offset the damaging consequences of that stagnation, or we choose to ignore it and treat the crisis as an ongoing banking crisis.

On your first point – that Bitcoin is simply replacing an old elite with a new one – this can certainly happen to some small extent (as it does when any revolutionary technology creates a nouveau riche), but it misses the point. The existing elites, at least to some extent, maintain their power not through any merit but through their control of the money supply (and here I’m using “elite” in the broadest possible sense – it could be for example simply the population of the USA, whose currency is kept artificially inflated through geopolitics). Politics based on printed money is not an honest politics, and it creates a nexus of power in banking which is ethically unacceptable. It is no accident of course, that the Bitcoin whitepaper was released in the eye of the 2008 hurricane, a wonderful example of enantiodromia, just as about 1 trillion of purchasing power was effectively extorted from the poor to keep the banks afloat.

On your second point – that Bitcoin will in any case fail since it is replicable, evidence suggests the contrary. Nobody knows for sure what particular set of cryptocurrencies will survive in the long term, but since they are protocols for financial interaction, it is most suitable to compare them to internet protocols. IP survived, while UDP survives also since it solves certain niche requirements, like video streaming. In email, SMTP dominated. Messaging protocols are governed by network effects more than almost anything else you can think of. There is nothing wrong with alternatives, which will take market share according to the needs they satisfy. That’s a natural free market. And the presence of, say, 5 different cryptos being used in real life transactions (and not just as fun experiments) does not invalidate the whole idea, quite the opposite.

On the idea that a blockchain could be “backed” by something with “real value”, this is a common misconception. There is a fundamental reason why Bitcoin cannot be linked to any physical store of value – because to do so would break its most fundamental property, public verifiability of transactions. This is achieved through digital signatures. If transactions are not publically and easily verifiable to all nodes on the network, then trust must be reintroduced. This is not a cryptocurrency. To quote Satoshi: “What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party”. Impossible with any external “backing”.

Yes because it’s about relativity to those who are initial investors. If you invest in something knowing someone who invested 3 years ago is x times better off than you, you suffer a diminishing return versus early entrants. You have a much greater chance of a higher return from pumping up an entirely new scheme. Otherwise it takes ever more dollars entering the bitcoin system to give you a similar return. In other words less money has to enter the litecoin system to get you a 100% on your investment versus the nominal amount that needs to enter bitcoin to get you a similar return. You see this in play all the time in the AIM stock market.

Facebook shares is now then very expensive, no one buys it anymore? duh!
Why do all stupid people that never will take any part in bitcoin need to comment on it? Bitcoin will always be marginal alternative tool. It will never have an effect on fiat systems, so why care if you dislike it? Krugman is the worlds most profuse talker with nonsens as contents. I hate the fact that I payed for his stupid price with my tax money! Comment on Kazakhstan currency instead! You will most likely not use it either, and your effect on bitcoin will be as big as on the KZT…

Facebook is actually a great example. Its shares are considered overvalued precisely because it is reaching saturation point with respect to users and because it is much better to gain exposure to start up with growth potential than a company that is losing users and is being replicated. The people who made money from Facebook stock were insiders. And it’s always insiders — the earliest entrants — who walk away with the bulk of the profit by cashing out against those who take the downside risk away from them.

I don’t dislike bitcoin. You are presuming and projecting a lot without clearly knowing my track record. My position has always been that Bitcoin is a game changer, a bit like Napster. It’s value is in the digital transaction system, which can be applied to any unit. It is not the Bitcoin unit that has value in and of itself.

And you know, I work for a great organisation that lets me comment about whatever i find interesting. At the moment I believe that’s virtual currency. And i’ve written plenty about other currencies thank you very much. Plus, I was writing about digital cash before Bitcoin was even in existence.

While it is technically possible to create alternative currencies – it is way more difficult to get sufficient number of people on board to use them. Without that, they fail. Just like it is unlikely to create unlimited number of McDonald’s-like food chains – just because there is nothing really unique about a fast food chain.

First mover advantage helps. But look at Facebook, that was a first mover and it is now waning too. As something becomes established it becomes prone to complacency and people always seek out the new. When it comes to value, it is always more exciting to be an early entrant into a growth opporunity than a late comer. This is why the pricier Bitcoin becomes the more attractive alternatives become. Don’t take my word for it. The phenomenon speaks for itself because the more Bitcoin grows the more alternatives come on the market, and the more they grow.

“Bitcoin is far too easy to replicate” .. you can copy/paste code all you like but the investment in mining hardware, which among other things provides security of the transaction ledger (and in turn confidence in the currency), cannot be replicated. As the value of bitcoin rises the incentive for the miners to keep mining bitcoin as opposed to other altcoins increases — not decreases as you say.

Also, many inventors and early investors become rich. With bitcoin it’s no different. Buying Microsoft and Apple and Starbucks and XYZ products (and publishing a blog on WordPress) certainly puts money into the “hands of a small elite” as you describe.

It can be replicated. Litecoin and about a dozen other systems are already in play, and many already claim superiority in terms of transaction time and capacity. The value is in the platform which can be applied to almost any unit, not in the particular unit.

Market share is a flight of fancy and partial to changing sentiment. And with Bitcoin there is no anchor, especially if the technology can be replicated to other value units. The only thing that makes holding Bitcoin attractive in the long run is the prospect for continued appreciation. This becomes increasingly the case if established money becomes digitised to the same degree.

I will go as far as to call this intellectual deceit. Even if one accepts that Bitcoin “represents the reconstitution of a hierarchal system” (even though it’s open source and anyone is free to become a miner if they’re ready to make the necessary investment in hardware), that has nothing to do with freedom.

The only reason any “small elite” would amass wealth in Bitcoin is because others are choosing to buy the bitcoins they produce. It’s your preferred economic order, where people are compelled by fiat and taxes to use a currency controlled by big banks or the government, that is oppression.

Private money is all around us and always had been. Every deposit created by a bank is as much a virtual unit as bitcoin. But at least banks lend their units to people who don’t have any. Not case with bitcoin which does little to spread wealth. And btw persuading people to give money voluntarily to feed a small elite is how Ponzi schemes work. And no the us money supply is not a Ponzi scheme precisely because the Ponzi can be debased so that wealth doesn’t concentrate in elite circles when output outpaces money supply.

Wealth does not concentrate? Are you the biggest blind fool ever born? Check the history! JP Morgan. A Nobel… The rich of yesterday was more concentraded than today’s rich but todays rich are 100 times richer than all bitcoin value together. You have not made a single clear thought in this whole thread!

In deflation financial wealth concentrates. I think the world’s economists would agree with that statement. And it is a deflationary problem we are suffering now. One of the reasons JP Morgan became powerful was because he was an asset owner during the Great Depression. And it doesn’t matter if bitcoin currently only represents a small share of the wealth. The point is that it’s designed to concentrate wealth not distribute it due to its inflexible supply. The more popular Bitcoin gets, the wealthier in relative terms the original owners of bitcoins become. That is also how ponzis work.

No not at all. I think we have a major wealth over concentration problem. If you actually bothered to research my position you would see I believe the crisis hails from an abundance problem driven by technological productivity. My position is that old capital is trying to suppress technology because it stands to distribute and deconcentrate wealth. Banks and the old corporate rich play a vital role in suppressing innovation and productivity, because it is only through monopolisation and artificial scarcity that they can ensure their wealth and power is not redistributed.
Banks are currently not lending, and thus fuelling the deflation problem, because they have no prospect for riskless returns… consequently there isn’t the money circulating through the system that there should be. I advocate more fiscal spending, a basic income and the digitisation of fiat currency, so that helicopter drops can be distributed directly to consuming individuals. Many established economists share these views.

Lending money spreads wealth mostly for the lenders – at the cost of creating the same amount of debt for the borrowers. Zero sum game?

By the way, wealth in the US has never been as concentrated as now – despite flooding the financial system with 75-80 billion dollar a month! If this amount does not spread the wealth, how is this wealth-spreading theory working in practice?

Regardless, BTC is at a very early stage – it is pointless to come to conclusion that BTC owners will not create a BTC landing mechanism.

I don’t disagree. But the difference is that lending money is conditional to activity. It’s not lent out willy nilly to anyone who can set up a mining rig and consume energy for uselessly, it’s lent to productive individuals who — if banks are operating properly — serve the interests of the economy by providing goods and services the economy needs. The banks get a share in the wealth these individuals create. If these individuals fail to increase wealth, then the loans they will have been given will have simply consumed valuable goods and resources uneconomically.

In today’s world we have an output gap however, so there is more stuff than people have the capacity (due to a lack of money) to redeem. Banks are not lending because of the conditionality attached to the money they create. They can only create money if it creates more productivity. But more productivity just creates more goods that noone can afford to buy, crashing prices and making the deflation even worse. It’s a vicious circle.

This is why we need more money in circulation. But we need money that is fairly distributed. I think the bitcoin is an important game changer which fiat currency systems can learn from.. It is only when money is fully digitised that things like negative interest rates can be applied.. in a bid to deconcentrate wealth.

I think you are assuming a lot of things about me and my views which are not simply not true.

Bank money is not truly private money. It’s still backed by the monetary base, which is issued by the government, and is used by the people because they are forced to pay taxes in it. The use of force is oppression, and it has nothing to do with whether it concentrates wealth in the hands of the elite or not.

Bitcoin, by virtue of being chosen in a free market by its holders/investors, is not oppressive. It also allows people to bypass oppressive controls on capital by being decentralized, making it quite aptly described as being about ‘freedom’.

“And btw persuading people to give money voluntarily to feed a small elite is how Ponzi schemes work.”

Bitcoin is not about persuading people to give money to a small elite. Bitcoin is a currency that a diverse group of people have bought into for a diverse set of reasons, and has steadily become more useful and valuable with greater acceptance and software infrastructure.

“And no the us money supply is not a Ponzi scheme precisely because the Ponzi can be debased so that wealth doesn’t concentrate in elite circles when output outpaces money supply.”

Bitcoin is not seeking to become the world’s only currency. It will likely exist in a multi-currency setting, where the money supply can expand freely. If people choose to use Bitcoin however, when inflationary options are available, then that is the will of the market, and not a form of oppression.

Bank money is private. It pegs to the state currency because that makes it more acceptable. Please see my money entanglement pieces. Private money and private debt predates fiat currency. And the government money guarantee system is designed to support private money not repress it. You have the causation the wrong way round. It is because private money saw a benefit in mimicking state money that state money was able to come to the rescue when private currency schemes over extended themselves or lost faith.

At any given time there are many different monies in circulation. In a well managed economy state money tends to be more liquid because supply is regulated, and there is a mutual interest in holding it. But in a badly managed economy Untangled private money or foreign money becomes preferable.

Academically I am an ancient historian who studied early ancient coinage and money systems. Historically and anthropologically your observations do not match the evidence for how things are or how they evolved.

As I’ve written frequently I have no problem In bitcoin as a complementary currency. I have a problem with those who argue it will replace fiat currency out right. I also have a problem with creating value sets that reward uneconomic activity or distribute wealth in a non meritocratic fashion.

Bitcoin’s peer2peer transfer innovation is its main outstanding positive feature but this can be applied to any value set and is not dependent on a baseless unit like bitcoin.

And btw I was writing about p2p based alternatives to the dollar as far back as April 2009 before anyone knew or had heard about bitcoin.

First time reader – I don’t really have general assumptions about you; I am really just responding to particular pieces.

I do appreciate your willingness to engage in the dialogue. It tells a lot about you.

Back to the dialogue:)

“But more productivity just creates more goods that noone can afford to buy, crashing prices and making the deflation even worse. It’s a vicious circle.

This is why we need more money in circulation. But we need money that is fairly distributed.”

I found this part very interesting: more productivity creates more goods that noone can afford – crashing prices lower – THIS IS WHY WE NEED MORE MONEY IN CIRCULATION.

I think putting more money in circulation is simply avoiding the fundamental contradiction, that noone (I know of) can resolve within the framework of the current socio-economic system.

In this system all investment is fundamentally serving one goal: increasing productivity. Whether it is a new product or service or the production of an old product or service.

The most important way to increase productivity is to eliminate human labor – as much as possible. This is the most deflationary part of the current socio-economic system, since human labor is actually the customer who buys the products. Eliminated human labor is non-purchasing customer.

It is not accidental that we are having unprecedented strange things in the economy now: the labor market is melting down due to unprecedented technological advance. The melt down is not temporary – it is just the beginning, temporarily buffered by cheap Asian labor.

Personally, I would encourage the speeding up of eliminating the labor market, by accelerating automation, robotics, as much as possible. There is no point of fighting it with temporary “job creation” incentives, by wasting more tax payers money, trying to turn back the clock.

In reality, only those jobs should be filled with humans, which still can not be automated or done by robots.

This would, of course, need to eliminate the entire, historical human experience, ideology, economics, politics of “people have to work for living”.

Of course, the current system can not do it – as this is the basic mechanism of – in lack of better term – to distributing money to consumers, by some kind of rule (“market economy”).

The problem with putting more money in circulation (in order to defeat deflation) is that deflation is caused by transforming to “labor-marketless” society, which malfunctions the money distribution mechanism. Not because there is not enough money in the system.

If you eliminate most of the labor market (you automate most of production) it does not matter how much more money you put into the system – as the money distribution is broken, The money will just stay there “undistributable” – which is happening already, bank landing is sinking, although we have never had mor money available in the system.

So what now?

It is not accidental, that the idea of “guaranteed income – decoupled from participating in the labor market” has surfaced just now.

It is basically an attempt to introduce a new money distribution system,
Completely removed from the labor market.

Coincidence? I don’t think so.

Now, let’s look at Bitcoin in this new context.

As part of the new money distribution system. Suddenly it does not seem to matter that much at all that Bitcoin is not deflationary (which is needed only to keep alive the fatally broken money distribution, due to the slowly dying labor market).

I think Bitcoin is just a symptom of the shift of paradigm – not in payment system, not in money – but the entire socio-economy, ideology of the “labor market-less” society.

You have pretty much summarized my entire view point. Please see my abundance and technology series on Ft alphaville. I’ve been arguing for years this crisis is due to a tech inspired paradigm shift and the subprime crisis was just a symptom. I am an ancient historian by training. I see things from a very big cycle point of view.

Bitcoin is a game changer. It is not in my opinion a solution in and of itself.

I advocate basic income as a better distributive mechanism. And I like the philosophy of buckminster fuller when it comes to labour and employment. Again see my previous writing.

Point is that value is changing because the economic problem is being solved. This is not the crisis most ppl think it is.

The quote at the top of the blog sums up my view. Problem is ppl come in cold to my blog and presume things about me and my views which are just not true.

The bitcoin enthusiasts are touchy and defensive, and because they tend to be government hating libertarians who are convinced the main evil is currency debasement and inflation it’s hard to have reasonable discussions.

I generally tend to be sceptical of everything. As soon as you find yourself 100% believing in something it’s time to question yourself is what I say.

My views have evolved over time as a result.

Also as a pole who experienced hyperinflation and currency crisis I can tell u this is not the same phenomenon. The clear mark of an inflationary currency crisis are empty shelves. Note Venezuela today.
No empty shelves in the US or Europe.

I don’t want to drag this out too much so I’ll make this my final post. Without a defined structure or moderator, these kinds of discussions can go on forever.

“Bank money is private. It pegs to the state currency because that makes it more acceptable. ”

The reason state currency is more acceptable is that people are forced to have a large store of state currency on hand to pay taxes with. Without this element of force, state currency would be uncompetitive with the currencies that would arise in a free market.

Why I’m bringing this up is that you claimed that Bitcoin “maintains the oppression of the masses”, when in fact it’s the legacy currency scheme of central banks and state-licensed banks that is based on oppression and suppression of market freedom.

The only way you could argue that Bitcoin is oppressive is to define oppression as the concentration of wealth in the hands of an elite, which is an incorrect definition, and argue that this is what Bitcoin leads to, which is merely a guess based on a particular reading of historical facts.

“As I’ve written frequently I have no problem In bitcoin as a complementary currency.”

Then we are in agreement.

“I have a problem with those who argue it will replace fiat currency out right. I also have a problem with creating value sets that reward uneconomic activity or distribute wealth in a non meritocratic fashion.”

That there are some people who argue that bitcoin replace all fiat is not the fault of Bitcoin as a protocol or a currency. Bitcoin is not at fault for how someone chooses to promote it.

As a final point, I’ll concede that it’s possible that a non-expanding currency, if it were the sole currency used in an economy, could reward uneconomic activity, but I believe that it’s pretty insignificant compared to the rent-seeking that occurs when currency issuance is centralized by the government.

Don’t get me wrong. I am no fan of current rent seeking! In fact I object to the fact current concentrations of wealth haven’t been eroded more!

The problem is when govt tries to act to erode these wealth stores in a perfectly controlled manner it is accused of debasement by the rich and inflation (when there is none). Expanding the money supply with no impact on the price index allows more money to circulate and makes everyone richer.

QE is ineffective because it’s an asset swap. That means we are currently adding money supply that ends up concentrating amongst the rich regardless.

Virtual currencies in some way do tackle the money supply shortage in a more equitable manner. They’re free money in a world that needs free money, and for as long as the supply is scarcer than the dollar and the dollar remains the unit of account they induce an implied and highly stimulative negative interest rate on the dollar.

My chief concern is about equitable distribution of free money.

I did a post on AV a while ago in which I argued the only meritocratic bit about bitcoins distribution is that at least it is directed at young people interested in coding and learning computer skills. Bolstering hacking defense.
Also to some degree it encourages energy saving computer processing tech to be developed.

It has also arguably managed something of a Jedi mind trick by getting black market types to abandon truly anonymous cash for it.

This is all good.

But, what remains bad!!! … is the anti-government and speculative behavior it encourages, its ability to be squeezed, the niche demographic group it favours (young men) and its greatest sin: it’s inequitable Ponzi like distribution that rewards early entrants.

Free money is great in this environment I just think basic income or govt directed spending at major social infrastructure projects, health, education etc would be more ethical than a lottery that seems to reward anti government fortune hunting young men who will be as inclined to hoard the wealth as conventional rent seekers.

I will concede that it’s a system that’s probably easier to implement than basic income or greater fiscal spending.

“Suddenly it does not seem to matter that much at all that Bitcoin is not deflationary (which is needed only to keep alive the fatally broken money distribution, due to the slowly dying labor market).”

I wanted to write:

Suddenly it does not seem to matter that much at all that Bitcoin IS deflationary (as you can’t put as many of it into the system as central banks want to, in order to create financial policy to “stimulate economy” – which is basically a code word for an attempt to distribute money [which used to be distributed by the now broken labor market], in order to enable consumers to buy, so that the economy does not stall.)

I don’t read Financial Times, Economist,,, I prefer novels :)
But maybe I should change my habit a bit. I will check out at least Alphaville

With Soros-like roots naturally interested in trying to see beyond the daily noise.

Bitcoin disputes make people way too emotional, indeed.
It is just a sample of what’s to come with the coming huge change the global human psyche is facing. In a sense it will be as cataclysmic as if we suddenly had an indisputable proof of the existence or non-existence of G_d.

The funny thing is, that we are making such a hard time for ourselves for what we should really celebrate: passing stupid work to machines :)

If we could only simply wrap our head around,the mind blowing idea, that “working for living” might not be the main form of money distribution.

Btw you inspired me to revisit Buiter’s early work on virtual currencies and how they can be used to distribute free money in such a way that allows the USD to transcend the ZLB without anyone noticing.

I wonder if we should be calling it BuitCoin.

If that’s the case, if it is all a ruse, and early adopters are the secret establishment creators of the system, then the bitcoin millionaire lottery possibly isn’t so bad. It does at least attract young people and the sort who need extra money.

But even buiter noted it would be a prob if it became too speculative. The china element basically perhaps unforeseen?

I still object to its energy intensity and its tiering wealth effect. But perhaps that can be offset by rise of more virtual units until money does just become free?

I am liking the idea it’s all a giant Jedi mind trick designed to debase currency discretely.

I would never deny that real value isn’t subjective. And all my writing to date always argues that value is subjective! In fact, my position is value is changing before our eyes. I suggest you do your research on what I stand for before accusing me of something I don’t believe in. It’s because value is subjective that Bitcoin’s “value” is a total emperor’s new clothes phenomenon. That applies to everything to some degree… but there are some things that have more mutual value points in common than other things. Real value tends to reflected shared value points, and that is what fiat currency has over bitcoin.

There will always be a rising elite because it is a natural function of human nature. Opportunity is more important than whether or not some elite can rise because with no opportunity you have no new elites and no progress.

An elite based on a meritocratic society is justifiable. We used to assign that merit to people who created more output for society ..as well as people who were prepared to defer consumption today for the sake of investing in tomorrow’s consumption, i.e. funding that additional productivity (ie. capitalists). But in a world where there is too much produce and productivity relative to the nation’s capacity to consume those goods, this merit system is turned on its head. At this point society benefits from wealth distribution… But IMO we must choose how to distribute that wealth on new meritocratic grounds. I think there are more deserving cases for that wealth than people who set up Bitcoin mining rigs. And I also believe if Bitcoin was a truly decentralised platform in the spirit of Napster then there would be no need to reward miners by reassigning wealth in the current fashion. The system weather the costs individually.. just like with napster the peer network simply shared. This could easily be achieved by keeping supply encrypted to avoid the double spend problem but endogenous rather than inflexible to the system’s needs. In short miners should not be incentivised by the opportunity to keep coins for themselves but by fees. And if we’re fees to miners, that’s really no different to the conventional bank transfer system. The only difference is that it would potentially be quicker, more efficient and more fungible. Because at the moment transfer agents tend to transfer within closed networks. The idea of opening the network and allowing agents to compete within it is the exciting novelty about the Bitcoin system.

This is deeply wrong. Napster was not truly decentralized, that’s why it failed. Bitcoin is truly decentralized, in that every node has the capacity to act in the same way as every other node, and trust is not assigned to any node.
egold is more like Napster, bitcoin is more like bittorrent.

>But IMO we must choose how to distribute that wealth on new meritocratic grounds

Who is this “we”? Meritocractic distribution will never be achieved based on trust.

>In short miners should not be incentivised by the opportunity to keep coins for themselves but by fees.

Clearly, and that is exactly what bitcoin does in the limit. At the start, Bitcoin needed an incentive model to survive, and one that is as fair (in the sense of blind) as possible. See my comments above about nodes to understand that this is true.

It’s clear that Bitcoin’s idea of “fair” and yours are very different and that might be at the heart of your critique. You don’t actually see value in decentralization, because your idea of fair (expressed in things like basic income) actually requires centralized control to function. People like me see the only chance of any fairness in the future is abandonment of trust in hierarchies as much as possible and replacement of that with public verifiability. To me, Bitcoin is fair because anyone can take part. Can anyone take part in our current banking system?

This has all happened before. When the printing press was invented and books made available it created a decentralization of information which was an unalloyed good in the world, but perceived as wrong doubtless by some priests who could no longer control what the people knew. These new printing press devices were evil and gave unacceptable, unmerited power to their owners.
Except – anyone could take part, anyone could print books and of course it wasn’t evil but rather the opposite. Calling the owners of bitcoin mining rigs an “unmerited elite” is a similar example, to me, of the pot calling the kettle black.

(By the way supply is not encrypted – the protocol does not use encryption anywhere, only digital signatures and hash functions.)

HI Izabella, I arrived here from reddit, read a couple of your other bitcoin articles and then am commenting here.

I agree that bitcoin looks very plutocratic to the recently arrived. However, if you dial back to the days when it was a proof of concept, you can guess why that particular distribution was chosen. It was chosen to incentivize early adopters in what seemed at that time like the craziest idea.

The earlier people adopted the same and the longer they kept it, the more benefit they have in the end. Infact, one could venture to say that the later you arrive in the game, the more stable the currency is. The 1200 to 600 crash was a 50% crash, but the 30 to 3 crash was a 90% crash. Even supposedly late adopters like overstock.com have clearly said that they aren’t going to keep their coins for any longer than a day, when they will swap it away for dollars. Is this what a plutocrat who utterly believed in the coin would do?

You might end up missing the bigger picture here. Someone who agrees with your monetary theory can use the bitcoin code as a base protocol for all sorts of decentralized agreement protocols. You can choose to float a currency that relies on a voting between coin holders deciding whether they need more units in the next cycle or less. it is possible to create currencies that rely on hashes from a trusted satellite/cellular tower creating geographically usable currencies.

The bigger point is – no bailouts. No changing the rules inbetween the game. The protocol rules are made available for everyone to read. Everyone knows in advance – the community that honours this coin has these rules. Whether they choose to join it after that or not is upto them.

Thanks for the nicely worded response.
You make a good point that it probably did need an incentive system when it started off. I was talking a lot with other P2P currency platform developers back in 2009 and I remember very well how controversial this sort of idea was back then. In 2008 no one had thought about these things on a mainstream economic level for years. The only mainstream economist looking to digital systems was willem buiter and even he was behind on the p2p side. People thought I was nuts to suggest complementary currency systems.
Point is I’ve been covering all this for a long time. And my educational background is in ancient coinage.
I appreciate your point but surely it supports my point we should stop talking about bitcoin as a value system, correct this error and help distribute the actual mechanics which are socially useful?

Not doing so risks turning the whole thing into a new episode of financial engineering gone mad.

For me bailouts are not a problem providing real economic wealth is distributed equally. This is why it’s essential to accompany the bailouts of 2008 with outright debasement raft helps distribute the money that should have been vapourised from concentrated hands more equally and in a less socially destructive panicky way.

QE is cumbersome because the current system prevents universal debasement. Digital fiat currency could allow for negative rates or proper helicopter drops. I actually favour basic income myself.

Having read Henry George more than 10 years ago, I actually agree with a basic income. But it is just not possible to implement within the framework of a crypto-currency. One would need a full fledged distributed republic to emerge where people can assign trusted oracles for various real world values that can be fed into the blockchain.

About the ease of debasement, Bitcoin is what it is and the current community around it would not accept any major changes from its current structure. The possibilities in the future lie in alternate communities and currencies emerging from these ideas where people can be persuaded to gather around in hope of greater future value.

Also, I wouldn’t get too hopeful about the black market types abandoning cash for bitcoin. As exchanges which require ID become the main source for bitcoin, there will be a greater push towards truly anonymous crypto currencies like zerocoin (not sure if its already released)

Bitcoin is a virtual currency that frequently appears in the media for its celebrity like ability to draw attention. To use Bitcoin at a more advanced level, an exchange connects you to people all around the world buying and selling Bitcoins. Exchanges offer both a web wallet for storage and management, and an easy way to trade using major currencies. CryptoCafe is going to be big in the world of Bitcoin, be sure to sign up for the big release announcement. The website is owned by a public company called Myriad Interactive, the stock symbol is MYRY and its predicted to be very big! Myriad Interactive Media Begins Development of Bitcoin Platform CryptoCafe.com